Sotheby’s Earnings Reflect Brighter Picture for Art Market

March 9, 2010 2:08pm

NEW YORK—On March 1, Sotheby’s released its fourth-quarter and full-year 2009 earnings report, showing a resurgence in demand for high-end artworks in recent months, which experts hope signals a rebound in the overall art market.

For the quarter ended Dec. 31, the auction house posted net income of $73.6million, or $1.09 per share, compared with a loss of $9.3million, or 14 cents per share, in the fourth quarter of 2008, when the global recession began to have a serious impact on the art market. For the full year, the house had a net loss of $6.5million, or 10 cents per share, compared with income of $26.5million, or 39 cents per share, for 2008.

Although fourth-quarter results were stronger than expected, the auction house’s reported revenue for the 12 months ended Dec. 31 provides a clearer picture of the effect of the market downturn and the factors weighing on the art market for most of last year. Sotheby’s overall revenues for 2009 were $485million, a 30 percent decline from the $691.6million reported in 2008. Auction house officials attributed this decline largely to a 54 percent decrease in net auction sales during the year as a result of the downturn in the art market.

Sotheby’s net income for the fourth quarter of 2009 was the second-highest for a fourth quarter in company history, in part the result of an increase of $52.1million, or 31 percent, in operating revenues from the fourth quarter of 2008, officials said. They attributed that increase largely to a 28 percent improvement in auction commission margin, as well as a reduction in losses from sales in comparison with late 2008, when the house incurred substantial losses on auction guarantees as the economic downturn began to take hold in the art market in September of that year. Both Sotheby’s and Christie’s drastically curtailed their use of guarantees last year.

For the full year, Sotheby’s consolidated sales, which include auction sales (with buyer premiums), private sales and dealer revenues, were $2.8billion, compared with $4.9billion in 2008. Chief executive officer William Ruprecht said sales last autumn yielded “significant improvement over their spring equivalents. Sell-through rates improved virtually across the board and our November sales of Impressionist, modern and contemporary art both exceeded their high presale estimates.” Ruprecht said Sotheby’s is “well poised to capitalize on an economic upturn and art market rebound as it occurs,” adding that “the momentum has continued into 2010.”

In early February, Sotheby’s scored a new record for the highest price for an artwork sold at auction, when Alberto Giacometti’s bronze L’Homme qui marche I (Walking Man I), 1960, a rare six-foot-tall lifetime cast estimated at £12million/18million, soared to £65million ($104.3million). The price just beat the previous record of $104.2million, paid at Sotheby’s in New York in May 2004 for Pablo Picasso’s Rose Period Garçon à la pipe, 1905.

Ruprecht said it would have been “impossible to imagine these results just one short year ago.” Sotheby’s also reported a significant improvement in private sales, with a total of $473million last year, up 27 percent from $373.7million in 2008.

Wedbush Securities analyst Rommel Dionisio issued a report on Sotheby’s on March 1, noting that the fourth quarter results were “well ahead of forecast on strong auction commission margins and solid cost control.” Dionisio reiterated his “outperform” rating on the stock, and raised the 12-month price target to $30 per share from $28 per share. “In recent weeks we have seen sharply increased supply coming back to auctions, as prospective sellers who sat on the sidelines through much of the downturn in 2009 are re-entering the market,” Dionisio wrote.

Stifel Nicolaus analyst David Schick also released a research note on Sotheby’s on March 1, writing that the company reported “substantial upside” to fourth-quarter earnings per share ($1.09, compared with the firm’s estimate of 68 cents). However, the firm maintained its “hold” rating on Sotheby’s stock, stating that “art market down cycles typically last 3–5 years and we are only partially through the latest decline,” and noting possible concerns about “supply for upcoming notable auctions” in New York.

After a drop in price early last month, shares of Sotheby’s stock have been steadily climbing in recent weeks, rising to above $29 from $22. As ARTnews­letter was published, the auction house’s shares were trading at $29.20 on the New York Stock Exchange.

On March 3, Sotheby’s announced that James Murdoch, who has been chairman and CEO of News Corporation for Europe and Asia since 2007, was unanimously nominated by the house’s board of directors to stand for election as a director at the company’s next shareholder meeting, scheduled for May 6.